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US economy slowed last quarter in the face of Covid – Advisor.ca

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The 2% annual growth last quarter fell below expectations and would have been even weaker if not for an increase in restocking by businesses, which added whatever supplies they could obtain. Such inventory rebuilding added 2.1 percentage points to the quarter’s modest expansion.

By contrast, consumer spending, which fuels about 70% of overall economic activity, slowed to an annual growth rate of just 1.6% after having surged at a 12% rate in the previous quarter.

Economists remain hopeful for a bounce-back in the current October-December period, with confirmed COVID cases declining, vaccination rates rising and more Americans venturing out to spend money. Many economists think GDP will rebound at a solid annual growth rate of at least 4% this quarter.

“The key story right now is the improving health situation,” said Gregory Daco, chief U.S. economist at Oxford Economics. “People are feeling a lot more at ease about moving about.”

Airlines have reported growing passenger traffic, businesses are investing more and wages are increasing as employers struggle to draw more people back into the job market. A resurgence of consumer spending could help energize the economy as the year nears a close.

At the same time, though, rising prices, especially for gasoline, food, rent and other staples, are imposing a burden on American consumers and eroding the benefits of higher wages. Inflation has emerged as a threat to the economic recovery and a key concern for the Federal Reserve as it prepares to start withdrawing the emergency aid it provided to the economy after the recession struck last year.

Thursday’s report from the government, the first of three estimates of last quarter’s GDP, showed widespread weakness. In consumer spending, purchases of durable goods, like autos and appliances, fell at a sizable 26.2% rate. Sales of clothing and other nondurable goods slowed to a modest annual gain of 2.6%. And purchases of services rose at a 7.9% rate, down from an 11.5% annual rise in the previous quarter.

Businesses, too, held back. Corporate investment in equipment and plants slowed to a 1.8% rate of growth, after a 9.2% annual increase in the April-June quarter. Residential construction declined at a 7.7% rate after an even sharper 11.7% drop in the previous quarter.

Last quarter, exports declined at a 2.5% annual rate while imports rose at a 6.1% rate — a surge that has contributed to clogged ports. The gap between exports and imports subtracted 1.1 percentage points from last quarter’s annual growth.

Opinion polls have shown that the public is growing increasingly concerned about inflation, a trend that has contributed to a decline in President Joe Biden’s approval ratings. Some economists, including Fed Chair Jerome Powell, have attributed higher inflation mainly to temporary factors, notably bottlenecked supply chains resulting from the speed of the economic recovery. Others say they worry that inflation pressures will prove more chronic.

The inflation data tied to Thursday’s GDP report showed consumer price increases at a still elevated 4.5% annual rate last quarter but down from 6.1% in the second quarter.

Republicans have zeroed in on higher inflation this year to support their charges that Biden’s economic policies aren’t working.

Rep. Kevin Brady of Texas, the top Republican on the Ways and Means Committee, called the new GDP report “awful” and “more proof that President Biden is bungling the recovery.”

Biden and his Democratic allies have been trying to push through Congress two major spending bills — one to upgrade the nation’s infrastructure, the other a social safety net bill that involves climate change, health insurance and child tax credits, among other items. On Thursday, the White House unveiled a US$1.75-trillion social safety net proposal, scaled down significantly from an initial US$3.5 trillion plan that ran into resistance from Republicans and two key Democratic senators.

The government’s estimate Thursday of GDP growth last quarter was even lower than economists’ forecasts for a significant slowdown. The effects of the delta variant, in keeping some people away from restaurants, retail shops and entertainment venues, was a key drag on growth.

In September, America’s employers added just 194,000 jobs, a second straight sluggish monthly gain and evidence that the pandemic was keeping its grip on the economy, with many companies struggling to fill millions of open jobs.

“The delta wave of the pandemic did a lot of damage — it caused consumer to turn more cautious,” said Mark Zandi, chief economist at Moody’s Analytics. “The virus surge scrambled global supply chains and disrupted production in a lot of industries and also created havoc in the job market.”

But in recent weeks, viral cases have steadily fallen, and many economists say they think the economy is accelerating again. Zandi is predicting 6% annual growth for the current fourth quarter, and some economists foresee an even stronger rebound, depending on whether viral cases continue to fade and supply shortages begin to ease.

For 2021 as a whole, economists generally expect growth to amount to around 5.5%. That would be the highest calendar-year expansion since the mid-1980s and a sharp improvement from the 3.4% plunge in GDP in the recession year of 2020. It would also easily exceed the sub-3% annual economic growth rates that prevailed in the years before the pandemic recession.

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Australia's economy likely contracted in Q3 but recovery expected soon – Financial Post

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BENGALURU — Australia’s economy likely contracted in the third quarter as fresh lockdowns weighed on consumer spending and investments, but the extent of the fall was milder than the historic recession recorded last year, a Reuters poll showed.

Despite Australia’s success last year in containing the COVID-19 virus, fresh flare ups and the stay-at-home rule imposed this year severely dented economic activity leading to job cuts and calls for a ramped-up vaccination drive.

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The Nov. 23-26 poll of 24 economists showed the A$2.07 trillion ($1.5 trillion) economy contracted 2.7% during the July-September quarter. Forecasts ranged from -3.8% to -1.9%.

If economists predictions were realized, it would mark a sharp turnaround in economic activity from the 1.8% and 0.7% expansion rates in the January-March and April-June quarters respectively.

“Extended stay-at-home orders in New South Wales and Victoria will have hit consumption, with services spending set to be particularly impacted,” said Felicity Emmett, senior economist at ANZ.

The year-over-year growth was estimated at 3.0% but that was over a decline of 3.6% in the third quarter last year, revealing no substantial growth.

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Data released by the Australian Bureau of Statistics on Thursday showed capital expenditure https://www.reuters.com/markets/rates-bonds/australia-q3-business-investment-slips-outlook-surprisingly-resilient-2021-11-25 fell a real 2.2% in the third quarter but an upgrade to future spending showed analysts were expecting a rapid recovery to take hold.

Construction activity too declined last quarter but at a much smaller rate than expected, showing a recovery was not far off.

“The fact investment held up pretty well, we expect GDP to surpass its pre-delta level this quarter. Consumption will probably rebound very sharply given lockdowns have now ended,” said Marcel Thieliant, senior Australia & New Zealand economist at Capital Economics.

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Despite the setback to economic growth last quarter, economists do not see that trend turning into a full blown recession.

With about 86% of Australia’s adult population now vaccinated and most restrictions eased, a swift recovery is anticipated on higher consumer spending.

“There is a saying that while history doesn’t repeat, it does rhyme. The pattern for GDP in the second half of 2021 is certainly rhyming with the middle quarters of 2020 – a sharp decline followed by a large bounce,” wrote economists at ANZ. ($1 = 1.3986 Australian dollars)

(Reporting by Shaloo Shrivastava; Polling by Md. Manzer Hussian and Devayani Satyan; Editing by Marguerita Choy)

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China's Economy Likely Remained Weak as Factories Slump – Financial Post

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(Bloomberg) — China’s manufacturing activity likely remained subdued in November, with weak domestic demand in the economy outweighing any relief that came from an easing in energy shortages.

The official manufacturing purchasing managers’ index is forecast to improve slightly to 49.7 from 49.2 in October when it’s released Tuesday, according to the median estimate in a Bloomberg survey of economists. That would be the third month it stays below the key 50-mark, indicating a contraction in production. 

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The non-manufacturing gauge, which measures activity in the construction and services sectors, is forecast to fall to 51.5 from 52.4 in the previous month. 

China’s energy shortages, which ravaged factory production in September and October, likely eased this month as coal producers boosted output and inventories rose. However, the housing market crisis shows no signs of ending, and frequent Covid-19 outbreaks continue to curb consumption.

“Supply-side restrictions have improved marginally, so production likely rebounded somewhat,” said Xing Zhaopeng, senior China strategist at Australia & New Zealand Banking Group Ltd. But there’s “not much positive signal on domestic demand,” which continued to weigh on activities, he said.

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Economic growth is forecast to slow to 5.3% next year, according to a Bloomberg survey median, with some economists seeing expansion as low as 4%. Bloomberg Economics forecast growth will come in at 5.7%, as the government will likely target a 5-6% range.

What Bloomberg Economics Says…

“In 2021, policy played a secondary role in setting the growth trajectory. In 2022, it will be pivotal. The extent of the slowdown will hinge largely on what balance China strikes between supporting short-term growth and advancing long-term reforms.

…We see the People’s Bank of China cutting the interest rate on its one-year medium-term lending facility by 20 basis points and the reserve requirement ratio by 100-150 bps by end-2022.”

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— Chang Shu and David Qu

For the rull report, click here

Authorities are trying to moderate the sharp downturn in the property market, while providing targeted support to areas such as small businesses and green technology. Officials will reveal more clues on how much policy easing they plan to provide during two key political meetings in December by the Politburo and the Central Economic Work Conference.

China will adopt a more proactive macroeconomic policy next year to respond to the challenges from an uneven recovery of the global economy and instability in containing the pandemic, the Securities Times, run by the People’s Daily, said in a front-page commentary Monday. 

Authorities have exercised restraint in using monetary and fiscal tools amid an economic slowdown this year, thus creating sufficient space for policy maneuvering next year, according to the commentary.

The slowdown is being cushioned by strong export demand, which likely remained solid in November, judging by latest shipment figures from South Korea.

Consumption and travel continues to be affected by a resurgence in virus cases and the country’s growing determination to stick to its strict Covid Zero strategy. Subway passenger traffic in six major cities of China declined less than 10% in November from October, though the plunge is smaller than that over the August outbreak, according to Xing. 

©2021 Bloomberg L.P.

Bloomberg.com

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China's Economy Likely Remained Weak as Factories Slump – Bloomberg

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China’s manufacturing activity likely remained subdued in November, with weak domestic demand in the economy outweighing any relief that came from an easing in energy shortages.

The official manufacturing purchasing managers’ index is forecast to improve slightly to 49.7 from 49.2 in October when it’s released Tuesday, according to the median estimate in a Bloomberg survey of economists. That would be the third month it stays below the key 50-mark, indicating a contraction in production. 

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